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EMI and Universal Should Merge, Purge and Start Over (Opinion)

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As a Senate panel hears arguments over the potential mega-merger, THR's music editor Shirley Halperin thinks maybe it's time to simply allow these companies to “screw it up again,” which might finally lead to a new business model.

A popular topic of discussion at last night’s Annenberg Space for Photography opening of the Who Shot Rock & Roll exhibit was not only the iconic images of such music legends as Elvis Presley, John Lennon, Michael Jackson, Tina Turner and Johnny Cash, among a hundred or so others shot by equally famous photographers, but stars of another sort: the music industry bigwigs who went to Capitol Hill on Thursday to debate whether the impending merger between Universal and EMI violates antitrust laws.

At the judging table for Senate Judiciary Subcommittee SD-226 were Universal Music Group chairman Lucian Grainge, EMI Music CEO Roger Faxon and Live Nation executive chairman Irving Azoff. Opposed to the consolidation and arguing that the combined company would have a monopoly on the recorded music market was Warner Music Group director and former chairman and CEO Edgar Bronfman Jr.; Martin Mills, founder and chairman of Beggars Banquet (home to Adele and Jack White); and Gigi Sohn, president of consumer advocacy group Public Knowledge.

Each made his or her own valid points (read many of them here at Billboard’s live blog) to the committee members, eight senators in total including Sen. Charles Schumer, D-N.Y., and Sen. Al Franken, D-Minn. The detractors contend that a combined Universal-EMI would have too much power in being able to determine the life or death of a new online music service simply by amassing such an enormous catalog that it would result in smaller artist rosters and a shrinking of staff and be unfairly influential in the matter of pricing and retail space. In favor of the merger is one undeniable fact: EMI is in trouble, and were it not for Katy Perry, David Guetta and Lady Antebellum, there might be an entirely different type of legal procedure taking place -- the kind that involves chapters.

“We're a unique industry,” said Azoff at one point, to which some of those gathered at the Annenberg (yours truly among them) responded: We’re an industry that makes no sense. The entire business model is flawed to begin with -- labels are in essence banks for musicians with insanely unfavorable but still strangely justifiable terms -- and have only become increasingly difficult to manage (profitably, at least) during the past decade-plus. (Let's face it: Adele was a fortunate fluke.) No one’s throwing up their hands quite yet, but how far are we from that? Five years? Ten? If time is money, both are running out.

Still, there are legitimate, life survival -- or at least standard of living -- issues at hand: matters of copyright, entitlement to royalties, an agreed-upon pay scale for online streams and video views, licensing of every sort and so much more. Music artists, according to Azoff, have lost 83 percent of their catalog revenues with the digital revolution (a client who used to make $400,000 annually from music sales is now pocketing $68,000, he said). To compare: The four-year recession has diminished the average American’s net worth by half that at 40 percent.

As for market share, most consumers are not familiar with the concept as it applies to record labels, so this is really more about market power, one senator asserted. You could even go a step further and look at it as straight-up market capture. Forget too big to fail, EMI-Universal would simply be too big to veil.

Azoff, however, sees this as a plus, as his business maneuvers have certainly proved over the years. So how does he see things playing out? "Having fewer majors will embolden artists to take more shots with independent labels and those independent labels will take more risk," he said.

Which brings us to the most interesting part of Thursday’s nearly two-hour session: While the business of rock 'n' roll sounds sexy, alluring and exciting, the minutiae of how it’s actually run -- with all its sideline deals, human-less P&Ls, stats about track equivalent albums, minuscule payouts, constant conflicts of interest, calculated image makeovers and product placements galore -- is incredibly boring. Not to diminish the big-picture implications of these decisions, but does an executive, who some might argue by age alone is out of touch with the taste and buying habits of today’s twentysomething-and-under consumer, justify a salary in the $30 million range or even half that? Or would, say, $4 million suffice for the tedious task of untangling decades of mismanagement and perceived invincibility? (Much of it drug-induced, no doubt).

Bronfman, who was vice chairman of Universal after it was merged with Seagram’s, then his family’s primary business (he stepped down in 2001), tried to make his case. He name-checked Steve Jobs and iTunes, emphasized the importance of fair competitive balance and said a postmerger Uni-EMI would harm his company’s standing in the market. It was a sentiment echoed by Mills, who said, “Give UMG a chance to have greater power, and they will exploit it.”

An aside, and not to be unnecessarily crass, but during a couple moments dramatized for effect, it felt like those seated at the table were simply taking a pile of horseshit and moving it five feet away.

In defense, Azoff was quick to point out that, “Mr. Bronfman has been talking about combining Warner and EMI for the better part of a decade. … Warner had a chance to outbid Universal in this process -- but chose to walk away. Now, they regret their decision and are spending millions to fight the deal. Well, I don't think the government should step in to give them another bite at the apple. That is not how our free-market economy works."

Can’t argue there. And in the spirit of free enterprise, maybe the answer to the Universal-EMI conundrum is to let these companies have at it so they can screw it up again, then cycle out the fat cats and start over. It certainly seemed like the golden parachute was on Faxon’s mind. Asked by committee chair Sen. Herb Kohl, D-Wis., how things will play out for EMI’s embattled CEO following the merger, the mild-mannered executive (who’s rumored to be in talks with, you guessed it, Warner Bros.) responded, "I'm going to lose my job."